California’s climate policy crisis

In May, California’s quarterly cap-and-trade auction imploded, with 90% of available allowances failing to find a buyer. Had these allowances sold at the minimum auction price, they would have brought in more than $990 million in total revenue—$550 million of which was due to be delivered to the Greenhouse Gas Reduction Fund to support high-speed rail and other state projects. The state now faces an enormous shortfall of carbon revenue.

California’s cap-and-trade policy is widely seen as the leading example of state carbon pricing. So what happened?

As my co-author Andy Coghlan and I explain in a new article in The Electricity Journal, California’s market suffers from a structural oversupply of allowances and a lack of long-term policy credibility. These problems illuminate how emissions trading systems work in practice and should inform the next generation of climate policies.